Ecuador - Third Development Banking Project : Loan 1359 - Project Agreement - 1 - Conformed

CONFORMED COPY LOAN NUMBER 1359 EC PROJECT AGREEMENT (Third Development Banking Project) between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT and COMISION DE VALORES CORPORACION FINANCIERA NACIONAL Dated February 18, 1977 PROJECT AGREEMENT AGREEMENT, dated February 18, 1977, between INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT (hereinafter called the Bank) and COMISION DE VALORES CORPORACION FINANCIERA NACIONAL (hereinafter called CFN). WHEREAS (A) by the Loan Agreement of even date herewith be- tween Republic of Ecuador (hereinafter called the Borrower) and the Bank, the Bank has agreed to make available to the Borrower an amount in various currencies equivalent to twenty-six million dollars ($26,000,000), on the terms and conditions set forth in the Loan Agreement for relending to CFN, COFIEC and the New Financieras (as such terms are defined in the Loan Agreement), but only on condition that, inter alia, CFN agree to undertake such obligations toward the Bank as hereinafter set forth; WHEREAS CFN, in consideration of the Bank's entering into the Loan Agreement with the Borrower, has agreed to undertake the obligations hereinafter set forth; NOW THEREFORE the parties hereto hereby agree as follows: -2- ARTICLE I Definitions Section 1.01. Wherever used in this Agreement, unless the context shall otherwise require, the several terms defined in the Loan Agreement, and in the General Conditions (as so defined) shall have the respective meanings therein set forth and the term "1973 Project Agreement" means the Project Agreement (Second De- velopment Finance Companies Project) between the Bank and CFN, dated August 17, 1973. -3- ARTICLE II Execution of the Project Section 2.01. (a) CFN shall carry out its part of the Project described in Section 3.01 (a) of the Loan Agreement and conduct its operations and affairs in accordance with sound financial and investment practices and standards under the supervision of quali- fied and experienced management and personnel and in accordance with its Estatutos and the Statement of Operating Policies and Pro- cedures. This paragraph replaces Section 2.01 of the 1973 Project Agreement. (b) Without limiting the generality of the foregoing and except as the Bank shall otherwise agree, CFN shall, inter alia, take all such steps, satisfactory to the Bank, as shall be neces- sary to: (i) within six months from the date of this Agreement, (A) submit to the Bank, for approval, and enactment by CFN there- after, a loan disbursement procedures manual and a project super- vision procedures manual; and (B) establish, and maintain there- after, an improved budgeting system designed to prevent liqui- dity constraints; (ii) ensure that from December 31, 1978 on, CFN's provisions for probable losses on the outstanding amount of all loans and investments made, or guarantees given, by CFN shall be equivalent to not less than one and one-half of one per cent of such outstanding amount. Section 2.02. CFN shall: (i) enter into a Subsidiary Loan Agreement with the Borrower; (ii) exercise its rights under the Subsidiary Loan Agreement in such manner as to protect the inte- rests of the Borrower, the Bank and CFN; and (iii) except as the Bank shall otherwise agree, not take or concur in any action which would have the effect of amending, abrogating, assigning, suspend- ing or waiving the Subsidiary Loan Agreement or any provision thereof. Section 2.03. CFN shall be entitled, subject to the provisions of the Subsidiary Loan Agreement, to withdraw the proceeds of the Loan as provided in Sections 2.02, 2.03 and 3.02 of the Loan Agree- ment. Section 2.04. (a) CFN shall submit Investment Projects to the Bank for approval or for authorization through the Borrower, as well as withdrawal application from the Loan Account, all as pro- vided in Section 2.03 of the Loan Agreement, and for such purpose it shall furnish to the Borrower and the Bank all such documents and information as are required pursuant to such Section. (b) Without limiting the generality of the foregoing, CFN shall calculate in accordance with methods satisfactory to the Bank the financial and economic rates of return of any project to be financed by CFN requiring an investment by the recipient of CFN's financing (including Investment Enterprises) of more than the equivalent of $500,000; and shall furnish to the Bank information on such rates, when submitting an Investment Project to the Bank, or whenever the Bank will request such information in connection with projects financed by CFN other than Investment Projects. Section 2.05. (a) CFN shall exercise its rights in relation to each Investment Project financed by it in whole or in part out of the proceeds of the Loan in such manner as to protect the in- terests of the Borrower, the Bank and CFN. (b) CFN undertakes that, unless the Bank shall otherwise agree, any Sub-loan or Investment will be made on terms whereby CFN shall obtain, by written agreement with the Investment Enter- prise or other appropriate legal means, rights adequate to pro- tect the interests of the Borrower, the Bank and CFN, enabling the Borrower to carry out its obligations under the Loan Agree- ment, and including, without limitation, in the case of any such Sub-loan and, to the extent that it shall be appropriate, in the case of any such Investment, the right to: (i) cause such Investment Enterprise to carry out and operate the Investment Project with due diligence and efficiency and in accordance with sound tech- nical, financial and management standards and to maintain adequate records and documents; (ii) apply to Sub-loans the financial terms and condi- tions set forth or referred to in Section 3.02 (b) of the Loan Agreement; (iii) cause such Investment Enterprise to use the proceeds of the Loan exclusively to finance the goods and services required to carry out the Investment Proj- ect in respect of which such proceeds were with- drawn and ensure that such goods and services shall - 6 - be (1) used exclusively in the carrying out of such Investment Project and (2) purchased at a reason- able price, account being taken also of other rele- vant factors, such as time of delivery and effici- ency and reliability of the goods and availability of maintenance and repair facilities and spare parts therefor and, in the case of services, their quality and the competence of the parties rendering them; (iv) ensure the Bank's and CFN's rights to inspect such goods and the sites, works, plants and construction included in such Investment Project, the operation thereof and any relevant records and documents; (v) require that such Investment Enterprise shall take out and maintain with responsible insurers such insurance, against such risks and in such amounts, as shall be consistent with sound business practice and that, without any limitation upon the foregoing, such insurance shall cover marine, transit and other hazards incident to the acquisition, transportation and delivery of the goods financed out of the pro- ceeds of the Loan to the place of use or installa- tion, and that any indemnity thereunder shall be payable in a currency freely usable by such Invest- ment Enterprise to replace or repair such goods; (vi) obtain all such information as the Bank or CFN shall reasonably request relating to the foregoing and -71- to the administration, operations and financial condition of such Investment Enterprise; (vii) establish and amend the amortization schedule to the respective Sub-loan in accordance with the cor- responding provisions of the Subsidiary Loan Agree- ment; and (viii) suspend or terminate access by such Investment Enterprise to the use of the proceeds of the Loan upon failure by such Investment Enterprise to per- form its obligations under its agreements with CFN. Section 2.06. (a) CFN shall take such steps, satisfactory to the Bank, as shall be necessary to protect itself against risk of loss resulting from changes in the rates of exchange between the various currencies (including Sucres) used in its operations. (b) Notwithstanding the provisions of paragraph (a) of this Section, any loss (other than losses to be borne by the Borrower in accordance with Section 4.07 of the Loan Agreement) or profits resulting from such changes in the rates of exchange, shall be treated by CFN, respectively, as expenses incurred or income ob- tained, during CFN's fiscal year in which such changes occurred. Section 2.07. (a) CFN shall furnish to the Bank all such in- formation as the Bank shall reasonably request concerning the ex- penditure of the proceeds of the Loan, the Project, the Investment Enterprises, the Investment Projects, the Sub-loans and Investments -8 and the administration, operations and financial condition of CFN (including any proposal to create, acquire or take over a Subsi- diary). (b) CFN shall maintain records adequate to record the prog- ress of the Project and of each Investment Project financed by CFN (including the cost thereof) and to reflect in accordance with consistently maintained sound accounting practices the operations and financial condition of CFN and shall enable the Bank's repres- entatives to examine such records. (c) CFN shall: (i) have its accounts and financial state- ments (balance sheets, statements of income and expenses and re- lated statements) for each fiscal year audited by independent auditors acceptable to the Bank in accordance with sound auditing principles consistently applied; (ii) furnish to the Bank, as soon as available but, in any case, not later than three months after the end of each such year, certified copies of its audited finan- cial statements for such year and the report of such audit by such auditors of such scope and in such detail as tho Bank shall have reasonably requested; and (iii) furnish to the Bank such other information concerning the accounts and financial state- ments of CFN and the audit thereof as the Bank shall from time to time reasonably request. Section 2.08. (a) The Bank and CFN shall cooperate fully to assure that the purposes of the Loan will be accomplished. To that end, the Bank and CFN shall from time to time, at the - 9 - request of either party, exchange views through their represen- tatives with regard to the progress of the Project, the perfor- mance by CFN of its obligations under this Project Agreement and the Subsidiary Loan Agreement, the administration, operations and financial condition of CFN and any other matters rrelating to the purposes of the Loan. (b) CFN shall promptly inform the Bank of any condition (including the incurrence of losses by reason of its borrowing operations outside the territories of the Borrower) which inter- feres with, or threatens to interfere with, the accomplishment of the purposes of the Loan, the maintenance of the service of the Subsidiary Loan or the performance by CFN of its obligations under this Project Agreement. Section 2.09. CFN shall exchange views with the Bank con- cerning any proposed amendment of its Estatutos or its Statement of Operating Policies and Procedures. Section 2.10. If CFN shall sell, lease, transfer, mortgage or otherwise dispose of or encumber its property or assets, ex- cept in the ordinary course of its operations as set forth in its Statement of Operating Policies and Procedures, CFN shall, except as the Borrower and the Bank shall otherwise agree, promptly repay an amount of the Subsidiary Loan equivalent to the fair value of such property or assets or make other arrangements satisfactory to the Borrower and the Bank to protect or secure the interests of the Borrower. - 10 - Section 2.11. Except as the Bank and CFN shall otherwise agree, CFN shall not incur or permit any of its Financial Sub- sidiaries to incur any debt if, after the incurring of any such debt, the consolidated debt of CFN and all its Financial Subsi- diaries then incurred and outstanding would be greater than six times the consolidated capital and surplus of CFN and its Finan- cial Subsidiaries. For the purposes of this Section: (a) "Debt" means any debt incurred or guaranteed by CFN or any of its Financial Subsidiaries. (b) Debt shall be deemed to be incurred (i) under a loan contract or agreement (including the Subsidiary Loan Agreement), on the date and to the extent that the amount of the loan is drawn down and outstanding pursuant to such loan contract or agreement and (ii) under a guarantee agreement, on the date the agreement providing for such guarantee shall have been entered into, but only to the extent that the guaranteed debt is outstanding. (c) "Consolidated capital and surplus of CFN and its Finan- cial Subsidiaries" means the aggregate of the total unimpaired capital, unappropriated surplus and free reserves of CFN and its Financial Subsidiaries after excluding therefrom such amounts as shall represent (i) equity interests of CFN in any of its Finan- cial Subsidiaries or of any such Financial Subsidiary in CFN or in any other of its Financial Subsidiaries and (ii) provisions for probable losses on the outstanding amount of all loans and investments made or guarantees given by CFN as shall have been - 11 - determined by CFN to be adequate to cover the risk of such losses in accordance with sound business and financial practices and, from December 31, 1978 on, also with Section 2.01 (b) (ii) of this Agreement. (d) "unimpaired capital" means paid-up capital less accu- mulated losses. (e) "free reserves" means the aggregate of appropriated retained earnings and revaluation of assets. (f) "consolidated debt of CFN and its Financial Subsi- diaries" means the total amount of debt of CFN and its Financial Subsidiaries, excluding therefrom any debt owed by CFN to any of its Financial Subsidiaries or by any Subsidiary to CFN or any other of its Financial Subsidiaries. (g) Whenever in connection with this Section it shall be necessary to value in terms of Sucres debt repayable in another currency, such valuation shall be made on the basis of the pre- vailing lawful rate of exchange at which such other currency is, at the time of such valuation, obtainable by CFN or its Financial Subsidiaries for the purposes of servicing such debt. The provisions of this Section replace the provisions of Section 2.11 of the 1973 Project Agreement. Section 2.12. (a) CFN shall at all times take all steps nec- essary to maintain its corporate existence and right to carry on operations and shall take all steps necessary to maintain and - 12 - renew all rights, powers, privileges and franchises which are necessary or useful in the conduct of its business. (b) CFN shall cause each of its Subsidiaries (if any) to observe and perform the obligations of CFN hereunder to the ex- tent to which such obligations shall or can be applicable there- to, as though such obligations were binding upon each of such subsidiaries. Section 2.13. (a) Except as the Bank and CFN shall other- wise agree, the balance outstanding at any time of CFN's short- and medium-term portfolio shall not be greater than four times the consolidated capital and surplus of CFN and its Financial Subsidiaries. (b) For purposes of this Section, (i) "CFN's short- and medium-term portfolio" means loans made and guarantees given by CFN and its Financial Subsidiaries (including deudores ]xr aceptaciones and creditos documentarios) having an original final maturity of less than five years, and (ii) the phrase "consolidated capital and surplus of CFN and its Financial Subsidiaries" has the same meaning as in Section 2.11 of this Agreement. Section 2.14. Whenever it shall be necessary for the purposes of this Project Agreement (except Section 2.11 thereof) to deter- mine the value in terms of Sucres of any other currency, such value shall be as determined by the Bank from time to time. - 13 - Section 2.15. Except as the Bank shall otherwise agree, CFN shall not make a Sub-loan or an Investment to an Investment Enter- prise if, after the making of such Sub-loan or Investment the ag- gregate amount of Sub-loans and Investments made by CFN to such Investment Enterprise or any of its Subsidiaries shall exceed the equivalent of three million dollars ($3,000,000). Section 2.16. CFN shall take all necessary measures tc amend, to the extent required by the Bank, CFN's Statement of Operating Policies and Procedures in respect of: (i) the inclusion of FOPEX; (ii) the change of Article VII Section 20 thereof to reflect the provisions of Section 2.11 of this Agreement; and (iii) the insertion therein of a new section re- flecting the provisions of Section 2.13 of this Agreement. ARTICLE III Effective Date; Termination; Cancellation and Suspension Section 3.01. This Agreement shall come into force and effect on the date upon which the Loan Agreement becomes effective. Section 3.02. (a) This Agreement and all obligations of the Bank and of CFN thereunder shall terminate on the earlier of the following three dates: (i) the date on which the Loan Agreement shall termi- nate in accordance with its terms; or (ii) the date on which the entire aggregate amount of the outstanding principal of, and all interest and other charges which shall have accrued on, every applicable Subsidiary Loan, shall have been paid by CFN; or (iii) the date on which the portion of the principal of the Loan relent to CFN shall have been repaid by the Borrower in advance of its agreed maturity in accordance with the terms of the Loan Agreement. (b) If the Loan Agreement shall terminate pursuant to Sec- tion 12.04 of the General Conditions, the Bank shall promptly notify CFN of this event. - 15 - Section 3.03. All the provisions of this Agreement shall con- tinue in full force and effect notvithstanding any cancellation or suspension under the Loan Agreement. - 16 - ARTICLE IV Miscellaneous Provisions Section 4.01. No delay in exercising, or omission to exercise any right, power or remedy accruing to any party under this Proj- ect Agreement upon any default shall impair any such right, power or remedy or be construed to be a waiver thereof or an acquies- cence in such default; nor shall the action of such party in re- spect of any default, or any acquiescence in any default, affect or impair any right, power or remedy of such party in respect of any other or subsequent default. Section 4.02. Any notice or request required or permitted to be given or made under this Agreement and any agreement between the parties contemplated by this Agreement shall be in writing. Such notice or request shall be deemed to have been duly given or made when it shall be delivered by hand or by mail, telegram, cable, telex or radiogram to the party to which it is required or permitted to be given or made at such party's address hereinafter specified or at such other address as such party shall have desig- nated by notice to the party giving such notice or making such re- quest. The addresses so specified are: For the Bank: International Bank for Reconstruction and Development 1818 H Street, N.W. Washington, D.C. 20433 United States of America - 17 - Cable address: INTBAFRAD Washington, D.C. For CFN: Comisi6n de Valores-Corporaci6n Financiera Nacional Apartado No. 163 Quito, Ecuador Cable address: CORFINAL Quito Section 4.03. Any action required or permitted to be taken, and any documents required or permitted to be executed, under this Agreement on behalf of CFN may be taken or executed by its Gerente General or such other person or persons as CFN shall des- ignate in writing. Section 4.04. CFN shall furnish to the Bank sufficient evi- dence of the authority and the authenticated specimen signature of the person or persons who will, on behalf of CFN, take any action or execute any documents required or permitted to be taken or executed by CFN pursuant to any of the provisions of this Agreement. Section 4.05. This Agreement may be executed in several coun- terparts, each of which shall be an original, and all collectively but one instrument. - 18 - IN WITNESS WHEREOF, the parties hereto, acting through their representatives thereunto duly authorized, have caused this Agree- ment to be signed in their respective names in the District of Columbia, United States of America, as of the day and year first above written. INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT By /s/ Adalbert Krieger Regional Vice President Latin America and the Caribbean COMISION DE VALORES-CORPORACION FINANCIERA NACIONAL By /s/ Gustavo Icaza Authorized Representative